Focus on strong investment strategy over single incidents crucial for long-term returns when investing offshore


PM CAPITAL says holding your line likely to be the best long-range outcome

Kevin Bertoli

Kevin Bertoli

PM CAPITAL has said that at times of geo-political or environmental disruption it is common for investors and markets to over-react and retreat from conviction positions or abandon a logical investment strategy.

According to the Portfolio Manager of PM CAPITAL’s Emerging Asia Fund, Kevin Bertoli, investors need to look beyond the headlines and daily events and follow a well thought out strategy. Mr Bertoli said analysis of disruptions shows that for the most part, they are short lived, and that short-term events should not cause major concern for long-term objectives.

“The daily news headlines out of China regarding its economic data, or the potential problems in the banking sectors create fear and uncertainty for investors. Geo-political tensions arising from issues like we are seeing in the Ukraine also fall into the same category.”

“However, during such times it pays to hold your nerve and remain focused on longer term outcomes.  This is particularly the case when it comes to emerging markets.”

Mr Bertoli said the reality is that the share market is far more volatile than the underlying businesses it represents, and this is more prevalent in times of crisis.

“Anxiety around geo-political issues will always have a short term impact on the market. However, history shows us that the underlying earnings power of the businesses the market represents, for the most part, are relatively unaffected by these events. The herd mentality of the market has a way of pricing near term events as if they are permanent in nature.”

“The cost of decisions influenced by short term global events can be large if it means an investors sells up or fails to go ahead with a logical strategy of investing based on the quality of the underlying businesses. In fact it is these occasions that investors can actually take advantage of the market underpricing quality companies, and can use this volatility to buy businesses at a discount to intrinsic value.”

“If you have a longer term investment time horizon, events which only impact markets for a temporary time should not sway investment decisions. Investors need to look down the road, and understand that the earnings growth potential of these businesses over the next three to five years is what will drive real share price appreciation.”

Mr Bertoli said the Asian market in particular is very volatile and sensitive to macro events.

“Near term economic data in China has the potential to disappoint. However, if you look deeper and understand the factors driving each individual business it highlights that there are sectors of the economy that are still growing. Consumer spending remains healthy and there are quality businesses driven by this long term positive trend in spending that we want to be long term owners of. It is this growth story we want to exploit over the long term. Geo-politic disruptions will not change this view.”

“At the same time, the financial markets in many Asian economies are under-researched compared to markets in the west and can represent excellent buying opportunities for those investors willing to take a bottom-up approach, which is exactly the PM CAPITAL formula for analysing and investing.”

According to its latest report, this formula has seen the PM CAPITAL Emerging Asia Fund deliver a total return, since inception in 2008, of more than 190%, outstripping its benchmark by more than 170%.

“Look for underlying trends and long-term structural opportunities, such as the rapid rise in consumer consumption in Asia and take a bottom-up approach to access superior risk reward situations that are not widely on offer in Australia, which will also help portfolio diversification.”  Mr Bertoli said.

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